Air Canada says travel demand remains stable despite economic concerns

Despite economic concerns and the impact of higher interest rates, Air Canada (AC.TO) affirmed on Monday that travel demand remains robust, as the airline announced a significant increase in profitability.

“We observe strong demand for the fourth quarter in almost every geographic region and market segment that we operate in,” stated Mark Galardo, Air Canada’s Executive Vice President of Network Planning and Revenue Management, during a conference call with analysts on Monday.

“At this point in time, we are not witnessing any major slowdowns.”

This strong demand allowed Air Canada to surpass analyst expectations for the third quarter. The airline, based in Montreal, reported an adjusted profit of $1.28 billion, or $3.41 per diluted share, during the quarter, up from an adjusted net income of $438 million, or $1.07 per diluted share, in the same period last year. According to Reuters, analysts had anticipated an adjusted profit of $2.15 billion.

Following the release of the third-quarter results on Monday, the airline’s stock rose by as much as 5% in early trading on the Toronto Stock Exchange, before dropping below Friday’s closing price. As of 11:10 a.m. ET, Air Canada’s stock was trading at $16.46, a decrease of nearly 2% compared to Friday’s close.

Airlines worldwide are facing rising cost pressures, partly due to increased labor costs. Air Canada is currently negotiating a new contract with the Air Canada Pilots Association (ACPA), and while CEO Michael Rousseau did not provide an update on the talks, he mentioned that WestJet’s pilot agreement was within their expectations.

John Di Bert, Air Canada’s Chief Financial Officer, also noted that the airline anticipates future cost pressures due to the potential effects of a new pilot agreement and “an evolving regulatory environment.” Transport Canada is in the process of updating its Air Passenger Protection Regulations, which could add pressure to Air Canada’s cost structure.

Despite the potential rise in costs, the airline projects its 2023 profit to fall within the upper-end of its previously issued guidance. On Monday, Air Canada stated that it expects adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to be around $3.75 billion to $4 billion. The airline also raised its full-year guidance for cost per available seat mile, an industry measure of operating costs, to a range of 1.5% to 2.25% above 2022 levels, up from the previous forecast of 0.5% to 1.5% above 2022 levels.

“Like most airlines, we continue to face challenges,” said Rousseau, “but our adaptability over the last nine months, combined with the ongoing stable demand environment, gives us confidence for the rest of the year and into 2024.”

With files from Reuters.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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